TMI Blog2010 (11) TMI 855X X X X Extracts X X X X X X X X Extracts X X X X ..... al in ITA No.2128/Ahd/2010 for the assessment year 2002-03 and decide the issue. The assessee has raised the following ground No.01:- ITA No.2128/Ahd/2010 01. On the facts and circumstances of the case as well as law on the subject, the learned CIT(Appeals) has erred in confirming the action of the Assessing Officer in levying the penalty U/s. 271(1) of Rs.8,18,251/- 3. The brief facts leading to the above issue are that the assessee is an individual and filed its return of income for the assessment year 2002-03 on 09-08- 2002 declaring total income at Rs.98,259/-. The assessee is regular income tax assessee and is filing returns of income since past several years and is assessed with ITO Ward-2(4), Surat in individual status. The assessee has earned income from sources such as textile business, rental income etc. and the same is duly reflected in the regular return of income filed. The returns of income filed for each of the assessment years 2002-03 to 2005-06 have been accepted u/s.143(1)(a) of the Act. The assessee filed an application u/s.273A of the Act for the assessment years 2002-03 to 2005-06 before CIT, Surat on 07-01-2008, wherein he has filed revised computatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Index Cost Sale Value LTCG 2001-02 7,24,014 Nil 7,24,014 30,84,300 70,95,337 40,11,037 2002-03 5,47,281 1,75,941 7,23,222 26,22,287 53,63,354 27,41,067 2003-04 4,30,007 6,36,932 10,66,939 26,31,812 42,,14,064 15,82,252 2004-05 1,56,366 3,17,161 4,73,527 10,78,074 15,32,387 5,54,313 (RS No.64) Table-B F.Y. Purchase cost Development Cost Total Cost Index Cost Sale Value LTCG 2002-03 4,95,040 1,11,899 6,06,939 17,75,680 34,11,135 16,35,455 2003-04 4,18,880 4,35,570 8,54,450 18,93,776 28,86,345 9,89,180 2004-05 1,90,400 2,71,542 4,61,942 9,67,566 13,11,975 3,44,409 5. The Assessing Officer in view of the above submissions worked out the capital gain for the year under consideration as under:- A.Y. R.S. Total cost Index Cost Sale Value LTCG 2002-03 57/1,57/2,58,62 63 7,24,014 30,84,300 70,95,337 40,11,037 Total 40,11,037 He further noted that the assessee failed to offer this longer term capital gain of Rs.40,11,037/- in the original return of income. Therefore, this long term capital gain (LTCG for short) was to be added to the total income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in good faith disclosing full and true particulars of his income and has truly discharged his tax liabilities and requested to drop the penalty proceedings. But the AO levied the penalty by stating that he is of the considered view that the assessee is liable to be penalized u/s 271(1)(c) of the Act as the assessee has committed mistake by not offering an amount of Rs.40,11,037/- being LTCG in the original return furnished and for this he placed reliance on the decision of Hon ble Kerala High Court in the case of Anand Liquors v. CIT (1998) 232 ITR 35 (Ker). Aggrieved, assessee preferred appeal before CIT(A) and CIT(A) confirmed the levy of penalty by giving following findings in para-6 to 6.2 of his appellate order:- 6. I have carefully considered both the positions. The fact remains that the Assessee had failed to disclose the LTCG earned by him over a period of four years including the year under consideration, which meant that his case was squarely covered by clause to section 271(1) of the IT Act. He had thus concealed the particulars of income or furnished inaccurate particulars of such income, Penalty therefore, was clearly leviable on the LTCG concealed by the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch a position, even if it is to be treated as an agreed addition penalty u/s.271(1) was still exigible. This brings us to the issue of whether penalty u/s.271(1) can be levied with regard to an agreed addition. The Hon ble Supreme Court , while deciding the case of K.P.Madhusudan V/s CIT (2001) 251 ITR 99 reversed the view taken in Shadilal Sugar General Mills. In the case of K.P. Madhusudan, the Assessee had taken certain loans which he could not prove with sufficient evidence. He therefore, offered the same sum as addition al income. Penalty u/s.271(1) was levied. The ITAT deleted the penalty but the High Court held that the imposition of penalty was valid. The Explanation to section 271(1)(c) is a apart of section 271. When the AOO or the Appellate Assistant Commissioner issues a notice under section 271, he makes the Assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By virtue of the notice under section 271 the Assessee is put to notice that, if does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Department and even there was no pendency of the assessment proceedings but the assessee himself came forward and offered the income to the Department and hence, in such scenario, there ought to be no question of levy of penalty and the penalty thus levied is without any justification and liable to be deleted. The Ld counsel for the assessee referred to various case laws of Hon ble High Courts and of Hon ble Supreme Court, which we will deal with when we will give our findings on this issue. 8. On the other hand, the Ld SR-DR, Smt. Shilaja Rai supported the orders of the lower authorities and stated that the assessee has concealed the capital gain earned from land transactions for four years as the original return filed by him, the assessee has not declared these transactions. She stated that in case of voluntary offer the assessee ought to have included the same in the original return of income or could have revised the return of income within the stipulated time. According to her, the assessee was under constant fear of detection by the Investigation Wing of the Department, who during the relevant period has conducted inquiries and investigations into under valuation of lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- Sub: Application u/s.273A of the I.T. Act Asst. Years 2002-03 to 2005-06 THIS HUMBLE APPLICATION OF THE APPLICATNT ABOVE NAMED MADE U/S 273A OF THE INCOME TAX ACT, 1961 FOR ASSESSMENT YEARS 2002-03 TO 2005-06 MOST RESPECTFULLY SHEWETH; 1. The Applicant is regular income tax assessee and is filing return of income since past several years and is assessed to Income tax with ITO ward 2(4), Surat having PAN No.ACYPC3171A in the capacity of individual. 2. The Applicant has earned income from sources such as Textile Business, Rental Income etc. and the same is duly reflected in the regular return of income filed. The return of income filed for each of the assessment years 2002-03 to 2005-06 have been accepted u/s.143(1)(a) of the Act accepting the returned income. The details of filing of the return of income for each of the above assessment years and subsequent years is as under:- Asst. Year Date of Filing Return Returned Income Returned filed with ITO 2002-03 02.08.2002 98,259 Ward 2(4) 2003-04 25.03.2004 1,00,866 Ward 2(4) 2004-05 24.03.2005 1,26,900 Ward 2(4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Somabhai contractor by entry dated 05.06.1961. By his Will dated 15.06.1976, this land was distributed between both his sons i.e. Shri Balvantrai Shri Harshadrai in the ratio of 50:50 respectively. Shri Harshadrai Contractor, brother of the applicant by Will dated 28.03.2002 gave his share of land to his sons Shri Paresh Shri Devendra. Shri Harshaddrai Contractor expired on 11.07.2002 and thus, his share in RS No.63 was then given to his sons Shri Paresh Shri Devendra. The respective share in the land is worked out as under:- Division of share As certain piece of land i.e. RS No.57/1, 57/2, 58 62 are owned by the applicant Balvantrai solely and other land RS No.63 jointly with applicants brother Harshadrai and that the development work of the land was under taken as a combined single entity for the whole land for all above R.S. Nos. the respective share in the land has been determined in the ratio of their respective holding in the total volume of the land. Name RS No.57/1, 57/2m 58 62 RS No 63 Total Land B.S. Contractor 28,021 sq.mt. 16,895 44,916 H.S. Contractor - - 16,895 16,895 28,021 33,790 61,811 After the death of Harshadbhai Contractor on 11.07.2002 his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03-04 28 13 2004-05 22 11 2005-06 8 5 2006-07 14 12 2007-08 40 6 Total 148 47 7. The applicant submits that as stated above, the land was purchased by his father and thereafter by way of succession was received by the applicant and his brother. The applicant submits that since the land was purchased prior to the year 1981, the cost of the land is taken as the fair market value as at 1/4/1981 as per the provisions of section 55(2) of the I.T Act. The applicant submits that the fair market value as at 1/4/1981 as per the Approved Valuer is Rs.225/- per sq.mtr. Thus, the applicant has considered the said value as cost of acquisition of the plots of land for the land owned prior to 1981 and @ Rs.320 p.s.m. being the actual cost of acquisition in the year 1985 for the land bearing RS No.64. 8. The applicant further submits that certain expenses were incurred for the improvement of land towards the development of the plots and for electricity from assessment year 2003-04, per putting necessary infrastructure in place at the site which is also taken into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ours. 14. The applicant submits that in his case, no enquiry or investigation is in progress nor any action taken. Motivated by desire to make a clean breast of his affairs and a desire to lead a peaceful life in old age, voluntarily and in good faith, the applicant hereby makes a full and true disclosure of his income and has truly discharged his tax liabilities. 15. The Applicant through this application prays for the waiver of penalty imposable u/s 271(1) of the Act. The applicant submits that it has satisfied and prescribed conditions for the waiver of the penalty as per the provision of section 273A i.e. i) The non-exercise of the power for waiver of penalty would cause genuine hardship to the applicant; ii) The applicant has always co-operated with the department; iii) The applicant has willingly paid the entire tax with interest and has always cooperated and there is no amount of tax due and recoverable from the applicant; iv) The applicant has as stated above, voluntarily and in good faith prior to any detection by the Assessing Officer made full and true disclosure of income. 16. The applicant submits that he is an individual and old aged and poor health and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and has not taken any action from the date of filing of application u/s.273A by the assessee till the levy of penalty by the AO u/s.271(1) of the Act and even till the withdrawal vide letter dated 30-03-2010. The relevant text of the letter of withdrawal reads as under:- To Date 30-03-2010 The Commissioner of Income-tax-1, Aaykar Bhavan, Majura Gate Surat Sub : Withdrawal of Application filed U/s.273A for waiver of penalty for the A.Y.2002-03 to 2005-06 PAN ACYPC3171A Respected Sir, As We are pursuing the appeal against penalty imposed U/s.271(1) for A.Y 2002-03 to 2005-06 by ITO Ward 2(4) before C.I.T. (Appeals)II. We wish to withdraw the application filed by us u/s.273A. Thanking You Yours faithfully, Sd/- (BALVANTRAI CONTRACTOR) 12. Now, we have to go to the assessment order framed by the Assessing Officer u/s.143(3) r.w.s. 147/148 of the Act. The very basis of the assessment order and reasons for reopening u/s.148 of the Act are that, the assessee has filed an application u/s 273A for waiver of penalty on land transactions which gave rise to LTCG to the assessee and not disclosed in the regular returns of income, the CIT, Surat passed on the infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een empowered to reduce or waive the amount of minimum penalty. The entire offer and acceptance has to be considered as one part and what the department tried to do was to dissect the offer and acceptance and to treat the so-called admission made in the offer binding on the assessee. Although the offer may not be accepted by the department, we would no permit such dissection of the offer and acceptance which, in our opinion, would go together. If the offer is not accepted and if the department insists on deciding the assessment case on merits, any facts said to be disclosed in such offer have altogether to be excluded and then it becomes incumbent on the department to resort to the usual assessment or the best judgment assessment, as the case ma be, and in that event the department would be empowered to impose the minimum penalty impossible under the section. The attempt of the department was on the lines heads I win tails you lose . Such an interpretation of section 271(4A) of the Act can evidently not be permitted and we feel that the Appellate Assistant Commissioner and he appellate Tribunal were correct in holding that in the event of there being no settlement, the disclosures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money landing business. The Hon ble Madras High Court further noted the facts that, it would be clear from the tenor of the inspection report as well as the order of the ITO that the whole matter was a voluntary disclosure on the part of the assessee. But for the letter dt. 29th Sept.1972, to the CIT, the Department had no knowledge about the money lending business. The IAC s satisfaction was based on the fact that it was a search that brought about the disclosure, which fact is clearly proved to be false. In the inspection report, it was clearly pointed out that no materials relating to the money lending business was found out. This fact was admitted even by the Departmental Representative. It was also admitted by the Department that the information came from the assessee without any suggestion or detection from the Department. A notice under s. 143(2) was issued fixing the date of hearing on 7th Oct.1972 which is long after the settlement petition to the CIT. This would show that no enquiry was made with reference to the return filed and no question was asked by the ITO as to the basis he is going to adopt for distributing the total income of Rs.4 lakhs for determining the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the constraint of exposure to adverse action by the Department. But it cannot be held as a principle of law that the disclosure of income made after the search / raid cannot be voluntary. It is a question which has to be decided by the Department in each case on the basis of the material on the record. If on record there is incriminating material with regard to the disclosed income, the disclosure cannot be voluntary. But if the Department has no incriminating material with regard to the income disclosed, the disclosure is liable to be treated as voluntary having been made without any compulsion or constraint of exposure to adverse action by the Department. In a case where the assessee has disclosed not only the income regarding which the Department has incriminating material, but has also disclosed the income with regard to which no incriminating material was seized by the Department, the disclosure of the income with regard to which the Department has no incriminating material, is liable to be treated as voluntary. For example, if an assessee is having five accounts and the Department has incriminating material with regard to one of those accounts only, the disclosure of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 273A of the Act by the assessee and no question was asked by the ITO as to the basis he is going to adopt for distributing the total income declared in the computation of income filed before CIT, Surat and determination made by the Assessing Officer for the respective assessment years. The Explanation was acting as a rule of evidence. It is always open to the assessee to prove that the failure to return the correct income did not arise from any fraud or any gross or willful neglect on this part. In the present case, the Assessing Officer did not detect any concealment while completing the assessment rather the assessee himself the land transactions revealing LTCG arising out of the said transactions. The Department came to know the income from the land transactions only after it was disclosed by the assessee. Therefore, on facts, the assessee established that the failure to return the correct income did not arise from any fraud or any gross or willful neglect on his part and accordingly, we delete the penalty levied by the Assessing Officer and confirmed by CIT(A). 17. In the result, assessee s appeals are allowed. Order pronounced in Open Court on 30/11/2010. - - TaxTM ..... X X X X Extracts X X X X X X X X Extracts X X X X
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